Morgan Sindall Seeks More Lucrative Work After Earnings Drop

By Rachel Savage -
Aug 5, 2013

Morgan Sindall Group Plc (MGNS), a U.K.
construction company that specializes in affordable housing and
urban regeneration, said it intends to gain more lucrative work
after first-half earnings declined.

“There is more work around, so we can be more choosey,”
Chief Executive Officer John Morgan said in an interview. “The
reality is it’s not going to change overnight, but the work we
are winning is better-quality work.”

Pretax profit fell 95 percent to 1 million pounds ($1.54
million) in the first six months as Morgan Sindall took a 13
million-pound charge for payments it hasn’t received on a
“small number” of contracts. Adjusted for the provision and
intangible amortization, the measure declined 24 percent, while
revenue rose 2 percent to 1.02 billion pounds, the London-based
company said today in a statement.

Morgan Sindall has struggled as it tries to reduce reliance
on government spending and increase business in urban
regeneration. European construction companies face declining
profit margins amid a lack of work, although Balfour Beatty Plc (BBY)
said in July it expects first-half U.K. losses to be recouped in
the second half. Balfour gets more than one-third of its revenue
from the U.S., while Morgan Sindall is almost entirely reliant
on the U.K.

Improving Outlook

The outlook for British building contracts is improving,
with the U.K. Purchasing Managers Index for construction jumping
to 57 in July from 51 in June, the highest since June 2010 and
ahead of the median estimate of 13 economists surveyed by
Bloomberg. A reading above 50 indicates expansion.

Morgan Sindall is “doing a good job of riding the waves”
of the construction market, Anthony Codling, an analyst at
Jefferies, said today in a note to clients. He reiterated a buy
recommendation on the stock.

The shares fell 0.6 percent to 655 pence as of 2:13 p.m. in
London, after declining as much as 7.4 percent earlier in the
day. Morgan Sindall has gained 27 percent this year, valuing the
company at 282 million pounds.

“Market conditions remain difficult and competitive
pressures have negatively impacted operating margins and
profitability, but net debt has reduced,” Codling said. The
company’s focus on cash management and contract selectivity
means that its “self-help is working,” he said.

Morgan Sindall said it had 40 million pounds in cash at the
end of the period, and average daily net debt of 32 million
pounds, compared to net debt of 12 million pounds and average
debt of 36 million pounds a year earlier.

“It’s an absolute focus on cash,” said Stephen Crummett,
Morgan Sindall’s finance director “Such that it gives us the
flexibility to invest in some of the regeneration schemes.”